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Plan now for the possibility of partnership disputes

On Behalf of | Nov 14, 2022 | Business Law

You and your business partners have big dreams for the success of your shared enterprise in Little Rock, but have you thought about how your business would fare if you and your partners had a falling out? A partnership dispute can spell the end of the business and turn partners into enemies. However, sometimes partnership disputes can be avoided from the get-go if all partners are proactive in addressing the possibility of disagreements.

Should decision-making power be shared equally?

First, when the partnership is formed, it can help to designate one partner to be the controlling partner.

This may seem counterintuitive, especially if you intended for all partners to have equal ownership in the business. However, equal decision-making authority can become problematic when disagreements arise and can ultimately cause a business to fail.

Instead, consider making one partner the controlling partner in charge. The non-controlling partners in exchange can be granted the right to leave with their equity purchased at a predetermined price. These details can be included in a written and signed statement of control.

Plan now for an eventual exit

Even if you and your partners are sharing control equally, it can help for all partners at the start of the business to agree in writing on how they will resolve disputes and what their rights will be should they eventually decide to leave the partnership.

For example, partners may decide to mediate disputes or have a third-party make a decision when partners simply cannot see eye-to-eye. You may also determine exit strategies such as a buy-sell agreement.

A partnership is at its core a relationship and like any relationship it can have its ups and downs. Acknowledging this when the partnership is formed and agreeing in writing on who will have decision-making authority, how disputes will be resolved, and what rights an exiting partner will have can help ensure that your business stays strong even when there is a partnership dispute.